U.K. Regulator Says Fox-Sky Deal 'Not in Public Interest'

Rupert Murdoch pauses as he delivers a keynote address at the National Summit on Education Reform on Oct. 14, 2011 in San Francisco, Calif.

The U.K. competition regulator early Tuesday London time published its preliminary report on 21st Century Fox's proposed deal for full ownership of European pay TV giant Sky, raising concerns about the influence of the Murdoch family trust that controls Fox and News Corp over the U.K. media landscape.

The regulator said that while it had concerns on these so-called "media plurality" grounds, it did not have concerns in the second area that its review has analyzed, namely the combined company's commitment to Britain's broadcasting standards. "Due to their existing track record in the U.K. and the range of policies and procedures the companies involved have in place to ensure broadcasting standards are met, we did not find public interest concerns in this regard," it said.

The Competition and Markets Authority (CMA) in its preliminary findings suggested the government could now block the deal, order a spin-off or divestiture of Sky News or set behavioral remedies to "insulate" it from the influence of the Murdoch trust. Media regulator Ofcom in an earlier step of the deal review had also proposed that Sky News should be protected to preserve its editorial independence.

"The CMA has provisionally found that if the deal went ahead, as currently proposed, it is likely to operate against the public interest. It would lead to the Murdoch Family Trust (MFT), which controls Fox and News Corporation (News Corp), increasing its control over Sky, so that it would have too much control over news providers in the U.K. across all media platforms (TV, radio, online and newspapers), and therefore too much influence over public opinion and the political agenda," it wrote.

Critics have long argued that the fact that Murdoch's News Corp owns such daily papers as The Sun and The Times of London give him much sway over public opinion in the U.K. already. Fox has said that in the age of digital and social media, there are many new voices and that papers' influence has been reduced.

"The provision of news has changed significantly over the last decade with the growth of online news," the CMA acknowledged in its report. "However, TV remains the platform used by the highest proportion of adults as a source of news (69 percent in 2016). Newspapers are also still used by nearly one third of adults as a source of news." Plus, it said traditional media outlets' also provide a lot of news online.

The CMA also highlighted: "Sky News and the News Corp titles have significant combined reach. ... The cross platform reach for Sky News is 21 percent and NewsCorp is 14%, and 31 percent on a combined basis, meaning that nearly one in three members of the public uses one of their platforms to access news."

The CMA also mentioned the $52.4 billion deal unveiled in December that will see Walt Disney acquire large parts of Fox. "The Disney/Fox transaction, if completed, would significantly weaken the link between the MFT and Sky, which is at the root of our provisional concerns about media plurality," it said. "Consequently, on the face of it, these concerns would fall away if the Disney/Fox transaction went ahead as announced."

But the CMA added: "The Disney/Fox transaction, though, will itself be subject to regulatory scrutiny, its terms may be varied as a result and it is unlikely to be completed until well after our inquiry has concluded. It is therefore uncertain whether, when or how the transaction will be completed."

Then-culture secretary Karen Bradley in late September referred the CMA on two public interest grounds following a review by Ofcom, which had raised concerns about its influence on media plurality in Britain. The CMA then said it would in its extended so-called phase two review "examine how the deal would impact media plurality and broadcasting standards in the U.K."

It has in recent months held hearings with Fox and Sky executives, supporters and critics of the deal and has been reviewing data from the companies, their rivals and industry organizations.

With the preliminary findings now known, the companies will get a chance to respond to them and offer possible remedies before a final CMA report will be sent to new British culture secretary Matt Hancock by early May ahead of a final decision on the deal by him.

"Today’s provisional findings move our proposed Sky transaction forward to the next phase of the regulatory review process," Fox said in reaction to the report. "We welcome the CMA’s provisional finding that the company has a genuine commitment to broadcasting standards and the transaction would not be against the public interest in this respect. Regarding plurality, we are disappointed by the CMA’s provisional findings."

It added: "We will continue to engage with the CMA ahead of the publication of the final report in May."

Originally, the final CMA report was set to come by early March, but the regulator said Tuesday it is using its right to an eight-week extension, with its new deadline for a final decision now being May 1. It cited the "exceptional volume of substantive submissions, the need to hold a large number of hearings and the novelty and complexity of the investigation."

Fox, which has so far said it plans to close the Sky deal by mid-year, said Tuesday: "We anticipate regulatory approval of the transaction by June 30, 2018."

Fox and Sky didn't discuss their openness to possible remedies, but analysts widely expect them to propose a new governance set-up for Sky News or even a possible sale. According to a recent media report, Sky has signaled it would offer to make concessions on Sky News, such as putting it in the hands of an independent trust.

21st Century Fox currently owns a 39 percent stake in Sky and in December 2016 offered to buy the remaining 61 percent for about $15 billion. Walt Disney in December 2017 unveiled a $52.4 billion deal to acquire big parts of Fox, including its stake in Sky.

Media plurality is defined as "a diversity of independent views about news and current affairs is available from the media," the CMA said early in the review process. "It also means that one person or group does not have too much influence over public opinion and the political agenda."

Broadcasting standards are defined in Britain's Communications Act of 2003 and apply to programs aired on TV and radio in the U.K. They include "reporting the news with accuracy and impartiality, and ensuring harmful or offensive material is not broadcast on radio and TV," according to the CMA.

The CMA's panel chair Anne Lambert, a former deputy director general of Britain's Office of Telecommunications and a former U.K. deputy permanent representative to the EU, has served as head of the panel leading the Fox-Sky review. The other panel members are Sarah Chambers, a former CEO of the Postal Services Commission and former director of consumer and competition policy for the Department of Business Innovation & Skills; John Krumins, who has sat on a number of boards of technology, data and services companies and has more than 20 years’ experience in banking, with expertise in mergers and acquisitions, including in media and technology; and Tim Tutton, a specialist in economic regulation.

"Media plurality goes to the heart of our democratic process," Lambert said in summarizing the CMA's initial findings. "It is very important that no group or individual should have too much control of our news media or too much power to affect the political agenda."